Securities Industry News

2010 SIFMA TECH EXP0

Getting ready for risk management and regulation in real time.

MONDAY MONITOR

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HOW WALL STREET OPERATES

Volume 22 Number 12 • June 21, 2010

UPTICK p. 3
Auditing the Audit Trail

OPERATIONS p. 14
Distressed Times for Distressed Loans

CASE STUDY p. 20 The Hando; to Equinix

LAST WORD p. 23 What’s in Your Router?

FOCUS ON TRADING

THE NEW NERDS

When you need to know transaction costs in real time or which venues are going down, who are you going to call? A sales trader.

FULL STORY ON PAGE 8

Taking Out Intraday Risk in Triparty Repos

BY CHRIS KENTOURIS

IS THE FEDERAL RESERVE Bank of New York endorsing the end of overnight triparty repurchase agreements in the United States?

Not exactly.

But intraday credit could be reduced if not disappear.

Topping the list of recom-
mendations of a triparty re-
purchase agreement task force
that was endorsed May 17 by
the New York Fed is the “prac-
securitiesindustry.com • A SourceMedia brand
tical elimination” of intraday
credit by mid-year 2011. This
would be dropped by the two
clearing banks—Bank of New
York Mellon and JP Morgan
Chase.

Will High-Frequency Traders Be Obliged to Trade?

By John Hintze

THE STOCK MARKET’S WILD swings in recent years have prompted regulators to consider new obligations on liquidity providers—traders that post constant streams of quotes, hopefully in bad times as well as good.

These providers, who now are typically classi;ed as high-frequency traders, have emerged as modern-day market makers, buyers and sellers who ensure that transactions in a stock can be made at any time.

But unlike past market makers, they do not have to trade when markets come unhinged.

This was highlighted during the so-called ;ash crash on May 6, when the Dow Jones Industrial Average dropped 300 points and then plummeted another 700 points before quickly recovering most of that loss. That day, many liquidity providers, who operate high-speed algorithmical-ly driven trading strategies, turned o; their machines. The result: Prices in some cases fell to a penny, with a lack of standing buy orders at higher prices.

Now regulators are con-
sidering ways to incentivize
liquidity providers such as
Getco, Citadel Investment
Group and RGM Advisors
to take on new—and at times
risky—obligations. The in-
centives could include al-
lowing cooperating ;rms to
co-locate their servers in the
same facilities as the match-
ing engines of trading venues,
getting direct-data-feed ser-
vices they currently purchase
from market centers and
other providers, or mandat-
ing larger quote increments
to generate wider pro;ts in
good times and make up for
providing quotes during the
bad. Obligations, meanwhile,
could include posting longer-
lasting quotes and stepping
up participation in the market
in volatile periods.